Management sheds moral burden

You are reading an excerpt from the daily newsletter “Der andere Blick,” today by Michael Rasch, NZZ’s Economics Correspondent in Frankfurt. Subscribe to the newsletter for free. Not a resident of Germany? Benefit here.

For globally operating corporations, engaging in activities in autocracies and dictatorships is a delicate balance. This is particularly true for China, where human rights standards, especially in certain regions, fall far below Western norms due to its size and economic power.

Suppression of the Uighurs

Few European companies have as much experience in China as the Volkswagen Group, having established its first joint venture with state-owned SAIC there about forty years ago. Volkswagen now has nearly forty production sites in China, with these collaborations being the only means of production until recently.

In 2013, VW, in partnership with SAIC, opened a small plant in the remote northwestern city of Urumqi, the capital of the economically disadvantaged Xinjiang province. The factory, located far from other facilities, was reportedly a concession to the government for allowing VW to establish a much larger site in Foshan, 4000 kilometers away. At that time, it was evident that opening the plant posed risks, given the region’s history of ethnic tensions.

Soon after, the authorities in Beijing intensified their crackdown on the Muslim Uighurs residing in Xinjiang, with credible reports of human rights abuses through forced labor and reeducation camps. This scrutiny not only came from human rights organizations but also from investors, including VW. The Chinese government consistently denied these allegations.

While VW claimed no knowledge of forced labor at the plant and allowed employees to practice their religion, the influence of the corporation waned outside the factory gates. The plant, already economically insignificant, ceased production in 2019 and became even more irrelevant during the pandemic. Selling the factory and two test tracks in the same province was not only an economic decision for VW but also a relief from the moral burden associated with the facility.

BASF Also Exits Xinjiang

VW’s divestment aligns with the company’s efforts to close plants in its home market of Germany and in Brussels. In China, Volkswagen plans to reduce production capacities for combustion engine vehicles in the coming years. The State-owned enterprise SMVIC, involved in the used car business, will take over the Urumqi plant and its employees.

Following BASF’s announcement about selling its stakes in two joint ventures in Xinjiang a year ago, Volkswagen’s withdrawal marks the departure of the second major Western corporation from the region. While this move may bring relief to the companies, it also poses a risk of diverting attention away from ongoing human rights violations in Xinjiang.

The presence of global corporations in sensitive regions often sheds light on existing issues, such as the human rights abuses in Xinjiang. With the departure of these companies, there is a concern that the spotlight on these atrocities may dim or fade entirely.

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